MERHELS BEST ACCOUNTANCY FIRM 2023 – LATVIA

Cost-effective transfer pricing documentation

Businesses these days are facing headwinds not seen in decades – soaring inflation, supply chain disruptions, geopolitical turbulences, you name it In this uncertain environment, we see in practice that finance and tax professionals, both in-house and external ones, are increasingly involved in optimizing internal processes and looking for cost reduction solutions, for example, considering the centralization of functions and the revision of outsourcing contracts

Regulatory requirements, on the other hand, continue to progress and the costs of complying with them only increase One of such requirements is the preparation of mandatory transfer pricing documentation for transactions with related parties, which has been introduced in most countries following the OECD BEPS initiative

In-house or outsource

The approach and considerations in the preparation of transfer pricing documentation may be different depending on the specific context However, the three basic pillars are: (1) knowledge and competence, (2) capacity and (3) costs These considerations perfectly support the decision-making process regarding the preparation of transfer pricing documentation

Sourcing models with an external service provider

Sourcing models commonly observed are:

Preparation of documentation in-house with an external support as needed Value to expect from service provider: (a) availability to solve individual complex technical issues, (b) transfer of knowledge, ideas and best practices to the service recipient The documentation is prepared by an external service provider Value to expect from service provider: (a) compliance with the regulatory requirements in accordance with best practices, (b) establishing consistent processes and transferring the knowledge to the service recipient, (c) where applicable, the use of technology tools to improve the quality and efficiency of the preparation process, internal data and information

Hybrid - preparation of documentation takes place in close cooperation between the company and the external service provider Value to expect from service provider: (a) availability of technical capacity, support in the effective identification and resolution of specific issues, (b) improvement of documentation preparation and process efficiency, (c) compliance with the regulatory requirements

The choice of the model may have one or more determining criteria, for example the amount of the budget and control of it, transfer pricing risk management (eg analysis of complex transactions requiring speciality knowledge), use of technology, optimal use of the capacity of the finance or tax team, acquisition of knowledge and best practices from the industry experts, process and quality improvement

Regardless of the chosen sourcing model, cost-effective and high-quality transfer pricing documentation (as a final product) is characterized by compliance, consistency across the group, efficient preparation process and balanced risk management

Practical considerations and ‘as is’ awareness

The approach by multinational groups to the transfer pricing directly depends on the practical experience of inhouse specialists, the complexity of transactions, technical capacity (access to the external database for the benchmarking study) and budget availability It often begins with defining risk levels and priorities, given that transfer pricing landscape across multiple jurisdictions can be surprisingly different

About Merhels

Operating out of Riga, Latvia since 1998, we are a boutique accountancy, tax and financial advisory firm combining over 20 experienced specialists with broad international experience We cater for the needs of organisations who value technical excellence and personalized attention

In terms of transfer pricing we support multinational groups on global projects covering the whole EMEA region We have been involved in M&A support, value chain structuring projects, advance pricing agreements, development of transfer pricing methodologies, preparation of documentation across multiple jurisdictions, benchmarking studies, cost sharing, allocation and cost contribution arrangements to broad spectrum of industries